Friday, July 22, 2016

ADAM SMITH IS INNOCENT OF THE CHARGE OF CAUSING ECO-COLLAPSE

“Even with respect to the public interest of the economic welfare of society, Smith's thesis that the invisible hand of the market would automatically bring about "universal opulence which extends itself to the lowest ranks of the people" as "a general plenty diffuses itself through all the different ranks of the society" could hardly have been more mistaken. Two-and-a-quarter centuries after Smith wrote, global capitalist development has produced the most obscenely unequal societies in history, with half the world living on less than two dollars a day, billions of people living in desperate poverty, many times more than the entire population of the world in Smith's day, while a tiny global elite, even just a few hundred individuals, concentrate an ever-growing share of the world's wealth, which they lavish on "opulence" on a hitherto unimagined scale. On this breath-taking failure of social scientific prediction alone, Smith's economic theory ought to have been ridiculed and drummed out of the profession long ago, as such a comparable predictive failure would have been in the natural sciences.

With respect to the public interest of broader societal concerns, which today would include the environment, Smith's philosophy of economic individualism as the means to maximize the public interest -- the common good of society -- is not only completely wrongheaded, it's suicidal. And it is completely at odds with the world's scientists and scientific bodies who are crying out for a plan -- a plan to stop global warming, to save the forests, to save the fisheries, to stop ocean acidification, to detoxify the planet, to save the thousands of creatures from extinction, etc. But capitalist economists, even the most humane like Paul Krugman or Joe Stiglitz, are hostile to the idea of economic planning.

Comment

Adam Smith did not cause what Richard Smith accuses him of bringing about. He described the history of the political economy of the states occupying the north-west of Europe up to the mid-18th century. He made no predictions in his weighty tome (except that the newly independent colonies of the USA in 100 years [1870s] would be the most opulent country in the world), in Wealth of Nations (1776-thru to the 6th edition in 1789). His focus was on Europe - indeed, he was somewhat pessimistc that governments of Europe would continue their habits of mercantile political economy by corrupt state-franchised monopolies, hostile tariffs, outright prohibitions and, often, economic warfare, as often slipping into dynastic, physical warfare at great cost in human life, evidenced across Europe (and spilling onto the high seas in distant territories of claimed colonies and their native populations).

Richard Smith ignores history, he predicts the future and is imbued with a typical modern economist's blatant ignorance of what Adam Smith wrote in both Moral Sentiments (1759) and Wealth of Nations (1776). What he calls ‘capitalist economists’ who purvey an economics that has in fact little connection to Smith’s writings. Indeed, ‘capitalism’ was not a word known to Adam Smith (1723-90) and was first used in English in 1854.

Richard writes of “Smith’s thesis” that “the invisible hand of the market “ which would automatically bring about "universal opulence which extends itself to the lowest ranks of the people" as "a general plenty diffuses itself through all the different ranks of the society”.

This is an absolute untruth about the invisible hand. It is not found in Wealth of Nations purveying the nonsenseRichard accuses Smith of when he referred once to 'an invisible hand'. In fact the myth was created in the delusions of modern economists from circa 1870s and widely believed since Paul Samuelson published allegations to that effect in his widely read textbook, Economics, 1948, and in 19 editions to 2010 (5 million sales, plus second-hand copies). Samuelson’s prestige - Nobel prrize and all that - ensured the myth of Adam Smith’s use of the “invisible hand” metaphor is firmly entrenched in 21st century discourse (see my regular column, “Loony Tunes”, on Lost Legacy for derived nonsense about the modern phenomenon.

Adam Smith nowhere said anything about an “invisible hand” of the market, or supply and demand”, that would “automatically “ bring about "universal opulence which extends itself to the lowest ranks of the people” - which is a quote about something different.

On this point, we may note that Richard Smith seems to believe that nothing has changed since Smith wrote in respect of the vast mass of people who lived in dire poverty in the 18th century in north-west Europe and in absolute and worse relative poverty elsewhere in the world. The internet was invented long after Smith died! Living standards for the market economies are incomparably better off than their great, great great, etc., grandparents experienced. Mass migration from today’s poorer countries indicates that millions prefer the risks of migration from their really poor economies to join the ranks of the poorest in the richer (so-called ‘capitalist’) economies across the globe. World poverty is reducing, not increasing - nobody appears desperate to seek to migrate to North Korea or Venezuela and there is no rush of North America’s poorest to leave the US to live in Mexico.

Richard Smith alleges that we live in the most “obscenely unequal societies in history”, etc. Of course, there are wealthy individuals living far above in access to more products than the vast majority of the average citizens in the world’s richest economies. It was obvious too in all previous ages. Smith’s point about the lowly day labourer in his day was incomparably better off than an “African King, the absolute master of the lives and liberties of ten thousand naked savages” (WN.I.i.12. p. 24) is worth considering. That trend has continued but with the added quality that everything has been scaled upwards: there are declining numbers of people in abject poverty on the scale of 18th-century Africa (consider mobile/cell phone-usage today across the planet and across all social classes).

The ‘global elite’ of ‘even just a few hundred individuals’ dramatises Richard’s anger but it is not representative of a unique problem compared with all elites in history. They were always a relatively small number. If his hypothesis is correct and the world is headed to eco-collapse, then the survivor generations will have to repeat the history of our forebears - small groups led by petty Kings or Queens and the rest subject to the whims of the “masters (and mistresses) of the lives and liberties” of their rulers.

Fortunately, Richard is wrong - as he is about Adam Smith, a wholly innocent man of Richard’s ignorant charges.